December 10, 2020

U.S. Weekly FundFlows Insight Report: Despite Record Market Highs, Investors Turn Conservative for the Fund-Flows Week

by Tom Roseen.

Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the fifth week in a row. They injected $23.5 billion for Refinitiv Lipper’s fund-flows week ended December 9, 2020, as investors continued to cheer COVID-19 vaccine-related news and kept hopes up on seeming bipartisan support for a scaled back relief bill. Fund investors, however, appeared to be a bit nervous, injecting a net $22.3 billion into money market funds, $5.4 billion into taxable bond funds, and $992 million into municipal bond funds. Meanwhile, investors were net redeemers of equity funds, withdrawing $5.4 billion this week.

Market Wrap-Up

Once again, the U.S. market hit multiple record closing highs during the fund-flows week even after reports of a record number of COVID-19 cases and hospitalizations. The broad-based indices hit record closing highs on three of the five trading days during the flows week as investors embraced news of the rollout of vaccines in the U.K., positive steps towards an FDA emergency approval in the U.S., and rising hopes that lawmakers will approve a narrowed COVID-19 stimulus package.

On the domestic side of the equation, stocks rallied with the Dow, S&P 500, NASDAQ, and the Russell 2000 setting record closes on Friday, December 4, a feat not seen since January 22, 2018. However, the NASDAQ Composite Price Only Index (-0.08%) witnessed the weakest returns for the fund-flows week of the broadly followed U.S. indices after taking a beating on Wednesday as investors embraced out-of-favor issues and took profits on many of the “stay-at-home” issues. The Russell 2000 Price Only Index (+3.49%) posted the strongest returns for the flows week. Overseas, despite Brexit concerns, the FTSE 100 Price Only Index (+2.09%) chalked up the strongest returns of the often-followed broad-based global indices, while the the Shanghai Composite Price Only Index (-1.79%) witnessed the largest declines.

The U.S markets started the fund flows week on a whimper as investors pushed the S&P 500 down on vaccine distribution doubts. On Thursday, December 5, Pfizer announced that it expected to ship only half of the vaccines it had planned to deliver for 2020 as it stumbled over supply-chain issues. Despite hitting a one-day record number of COVID-19-related deaths in the U.S., the Dow and the NASDAQ were able to stay in the black as investors remained hopeful that a new round of stimulus would be agreed upon by U.S. lawmakers. As mentioned earlier, on Friday, December 4, all four commonly followed U.S. indices hit record closes on the day as investors anticipated lawmakers would be forced to approve a stimulus package after the U.S. Department of Labor reported that the U.S. economy added only 245,000 jobs in November, missing analyst expectations of 432,000, the smallest monthly gains since the U.S. began to emerge from the lockdown. On a positive note, October U.S. factory goods orders rose for the sixth consecutive month.

On Monday, December 7, the U.S. markets finished split with the NASDAQ setting another record close and the Dow ending the day lower as investors took a wait-and-see approach to a new stimulus package and government shutdown updates. Investors turned a keen eye on discussions between the EU and U.K. officials concerning a trade agreement that at this point doesn’t look too promising. However, the S&P 500 and the NASDAQ carved out new record highs on Tuesday, December 8, as vaccine-related news outweighed a rise in COVID deaths and hospitalizations. Progress on vaccine approvals and the U.K.’s vaccine rollout offset news of U.S. record hospitalizations. Investors embraced news that the Pfizer/BioNTech vaccine was likely to receive a favorable safety profile by the Food and Drug Administration. On Wednesday, however, stocks generally finished lower, with many of the FAANG and “stay-at-home” issues dragging down the broad-based U.S. indices. Shares of popular technology issues declined around 2.0% for the day as investors sold technology shares and rekindled their interest in out-of-favor issues.

Exchange-Traded Equity Funds

Equity ETFs witnessed net outflows for the first week in six—handing back $2.3 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$5.2 billion), withdrawing money, also for the first week in six. However, nondomestic equity ETFs witnessed net inflows for the fifth week in a row, attracting $2.9 billion this past week. iShares Core MSCI Emerging Markets ETF (IEMG, +$1.1 billion) and ARK Innovation ETF (ARKK, +$761 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$9.0 billion) experienced the largest individual net redemptions, and iShares Core S&P 500 ETF (IVV, -$1.7 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fourth week in five, taxable fixed income ETFs witnessed net inflows, taking in $767 million this last week. APs were net purchasers of government-Treasury ETFs (+$753 million) and flexible ETFs (+$713 million) while being net redeemers of corporate investment-grade debt ETFs (-$981 million) and corporate high yield ETFs (-$247 million). iShares TIPS Bond ETF (TIP, +$950 million) and iShares Core US Aggregate Bond ETF (AGG, +$692 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$2.2 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$908 million) handed back the largest individual net redemptions for the week. For the seventh week in a row, municipal bond ETFs witnessed net inflows, taking in $357 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the thirty-third week in a row, withdrawing $3.1 billion this week, with the macro-group posting a 0.84% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $2.5 billion, witnessed their twenty-sixth consecutive weekly net outflows while posting a 0.81% gain on average for the fund-flows week. Nondomestic equity funds—posting a 0.91% return on average—experienced their sixteenth consecutive week of net outflows, handing back $591 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.0 billion) and mid-cap funds (-$428 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$244 million) and global equity funds (-$346 million).

Conventional Fixed Income Funds

For the fifth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $4.6 billion this past week—while posting a 0.27% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.9 billion), government-Treasury funds (+$315 million), and international & global debt funds (+$315 million) while being net redeemers of balanced funds (-$251 million). The municipal bond funds group posted a 0.32% return on average during the week and witnessed its fifth consecutive weekly net inflows, attracting $636 million this week.

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